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Credit Agricole’s plan is to avoid incurring the additional capital costs by selling 80 percent of its exposure on new project finance loans to outside investors, including insurance companies and pension funds. The bank will accomplish this by forming a new unit within the investment bank that will both originate the loans and sell them to investors.
This is pretty much straight out of the McKinsey playbook.
Banks must strive to improve their ability to transfer risks in three ways. One is to improve cooperation between the lending organization and product development, such that both teams are committed to increasing the volume of credits that can be securitized, sold, or syndicated. Contract standardization is essential here, especially as far as maturities are concerned. Incentive systems can help raise the extent of such cooperation.
Another way to transfer risk is to broaden the bank’s base of syndication and securitization partners, both geographically and by industry. Banks should court government funds, insurance companies, and other investors to improve their ability to sell into secondary markets. The return of nongovernmental investors such as private equity firms and hedge funds may offer further opportunities for transferring risks.
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